It seems right now that energy companies just can’t catch a break. If the recent 40 percent fall in oil prices is a boon for global consumers, the news has not gone down so well in the boardrooms across Houston and Calgary.
The Economist recently published a witty front page depicting what it calls the new economics of oil: Sheikhs vs Shale. Like most recent analysis, the magazine focused on what the current oil shock is doing to reconfigure the contours of the global economy. The geopolitical shifts over the next decade will be profound, according to the article.
But what about energy companies themselves? With oil at $60 a barrel, share prices have taken a hit and investors have started to become more vocal on issues such as remuneration and climate change. The Telegraph recently reported that so called ‘activist investors’ were on track to launch a record number of actions this year, with major energy companies right in the firing line.
Energy companies have traditionally relied on high oil prices and developing new reserves as the way to keep shareholders happy. Communicating intangible assets such as brand and reputation were seen as secondary to how many barrels of proven reserves a company had. Operating in an industry with a historically iffy reputation was broadly fine (with a few exceptions) as long as you kept your shareholders happy. But what happens when the rules of the game change and your shareholders become activists, joining the NGOs, regulators, and protesters and start questioning the value of your company? The current reputational threat is difficult to exaggerate and looks certain to be a major trend going in to 2015.
I recently spoke about some of these issues to a senior communications executive at a mid-size energy company. He acknowledged that it had been a very difficult year for the industry, with issues such as the Arctic exploration program and continued litigation against BP in the US. The recent plummet in oil price was certainly something investors were deeply worried about. However, he believed that his company’s reputation was its biggest asset and a far stronger indicator of its future, even more than the volatile oil price.
The executive claimed that the number one thing his board wanted to know when partnering with other companies was what their reputation was like. Doing all the hard work below the ground and ignoring what was going on above it is something the entire industry has been guilty of for a long time, he added. For his company, building its reputation was at the top of the list of priorities. So what did he think the current reputation of the industry was?
“I think it’s improved quite a bit over the last few years, but to be honest the bar was so low that progress can feel slow. Public trust in the industry we all know is historically low – in a lot of cases that is justified when you think about some of the major incidents in the past few years. However, the biggest challenge is for us to remind people why we exist, and to educate them about things like our role in the future of global energy. It is a debate that we can’t avoid and I think people are starting to give us a fairer hearing than say two or three years ago.”
And what of the organisations such as Greenpeace who appear to remain as committed as ever to stop drilling in places such as the Arctic? “I can’t speak for the Arctic myself, but these organisations absolutely have a role to play in the process. I have been dealing with NGOs for a long time on issues such as sustainability, human rights and carbon capture and storage (CCS). They have been incredibly useful but I can’t say the two camps will ever necessarily see eye-to-eye on every issue. It is about maintaining an open dialogue, building trust and being transparent. It is the only way you can hope to be credible to these guys”.
It is a constant battle to get your message across, argues the executive, and has to be done in good times and bad. It means constantly reminding people, NGOs and the media about the work you do and why you do it. Increasingly, shareholders and investors are becoming more interested in those intangible assets such as reputation and brand, and what impact they have on a company’s value and long-term health. Communicating value in times of crisis is critical and something which doesn’t have to be determined solely by changes in oil prices. This will be a huge challenge in 2015.
Measurement and evaluation